IBEC: USC should be retained

The Irish Business and Employers’ Confederation (IBEC) insists Universal Social Charge (USC) must be retained, with more workers being brought into the tax net.

In a recent report examining taxation, IBEC admits that while tax on work is too high, too many people are not paying any tax whatsoever.

USC was introduced back in 2011 as a temporary emergency measure and currently brings in €4 billion in revenue for the Irish economy. Within its report titled ‘General Election 2016: Rethinking the Tax Debate’, IBEC states that including USC, PRSI, VAT and income tax, almost two-thirds (65 per cent) of Irish workers pay marginal tax rates and believes this should be reduced to 45 per cent.

The report, written by economist Gerard Brady, states that core taxation in Ireland remains above the European average, but workers pay less social insurance compared with the European average.

Ireland’s income tax is the fifth-highest in the European Union (EU) and workers hit the marginal rate too early, the report said. Indeed, based on a €1 pay increase, just 12.4 per cent in the UK will pay more than half in tax, while in Ireland 39 per cent will do so.

The report also states too many people are not paying income tax either. Almost a third (32 per cent) “of all income tax cases end up paying neither income tax nor USC”, while in the UK just 11 per cent are exempt.

“Abolishing the USC would be a step in the wrong direction to a more efficient tax system, given that it is the most efficient of taxes, captures a broader base of income and is the only tax on income a large proportion of workers’ pay,” the report said.

“Its abolition would narrow the tax base even further, putting more pressure on smaller numbers of people for the total income tax take.”

IBEC believes USC could be transformed from a contribution for employees to a defined contribution-based pension scheme.

Date published 15 Feb 2016 | Last updated 15 Feb 2016